Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Financial Statements and Independent Auditors’ Reports June 30, 2009 and 2008

Contents

Page

INDEPENDENT AUDITORS’ REPORT 2

MANAGEMENT’S DISCUSSION AND ANALYSIS 3‐8

FINANCIAL STATEMENTS:

Statements of net assets 9

Statements of revenues, expenses, and changes in net assets 10

Statements of cash flows 11

Notes to financial statements 12‐21

SUPPLEMENTAL INFORMATION:

Independent auditors’ report on supplemental information 23

Schedule of revenues, expenses, and changes in net assets on a departmental basis 24

Schedule of functional expenses 25

Bellevue INDEPENDENT AUDITORS’ REPORT

Boise

Grandview Moses Lake Board of Trustees Omak Washington State University

Othello Pullman, Washington

Quincy

Spokane We have audited the accompanying statements of net assets of Northwest Public Radio and Tri-Cities Television (a public telecommunications system operated by Washington State University) (the Walla Walla System) as of June 30, 2009 and 2008, and the related statements of revenues, expenses, and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the System’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

As discussed in note 1, the accompanying financial statements present only the financial position, changes in net assets, and cash flows of the System. They do not purport to, and do not, present fairly the financial position, changes in net assets, and cash flows of Washington State University in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Northwest Public Radio and Television as of June 30, 2009 and 2008, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The management’s discussion and analysis on pages 3 through 8 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Spokane, Washington December 1, 2009

2 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

Introduction

The following discussion and analysis provides an overview of the financial position and operations of Northwest Public Radio and KWSU/KTNW Public Television (the “System”) for the years ended June 30, 2009 and 2008. This discussion has been prepared by management, and it should be read in conjunction with the System’s financial statements and accompanying notes which follow this section.

Northwest Public Radio and KWSU/KTNW Public Television is a noncommercial educational radio and television system licensed to Washington State University (WSU) in Pullman, Washington. The System’s financial statements include the accounts for its thirteen public radio stations, two public television stations, and Academic Media Services for which broadcast, budget, accounting, and certain grant purposes are separately identified. The System does share facilities and personnel and is constituent organizational departments of WSU.

These financial statements present only the above‐described portion of the activities of WSU, and are not intended to represent the financial position, results of operations, or changes in net assets of WSU taken as a whole. WSU is a public university in the state of Washington, governed by a ten‐member Board of Regents appointed by the State Governor. The complete financial statements of WSU may be found at http://www.wsu.edu/~genacct/finstat.htm.

Financial Highlights

Overall, the System’s financial position improved during the year ended June 30, 2009:

• Assets decreased by $299,915 largely due to a reduction in grants receivable and the purchase of capitalized equipment in connection with major initiatives to upgrade radio and television operations to digital technology. These purchases were funded by capital grants.

• Liabilities decreased by $562,092 primarily due to a decrease in deferred grant revenue as a result of the completion of equipment grant projects.

• Net assets, which represent the residual of assets after deducting liabilities, increased by $262,177.

Other significant changes to operations were as follows:

• Revenues from all sources totaled $8,637,300, a decrease of $1,462,321 from fiscal year 2008. Most of this decrease can be attributed to less nonoperating grant revenue for the purchase of equipment.

• Expenses totaled $8,375,123, a decrease of $842,722. The most significant areas of decrease were due to an overall decrease in expenditures attributable to the economic downturn and a reduction in noncapitalized operating equipment funded with appropriations from WSU.

3 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

Financial Highlights (continued)

• Capital additions, net of depreciation and disposals, totaled ($349,358).

• Long‐term debt, net of current maturities, increased by $18,843. Financing was provided by the state of Washington to fund a portion of the local match required by federal equipment grants more fully described in note 7 of the notes to financial statements contained herein.

Presentation of the Financial Statements

The System’s financial report includes three primary financial statements: The statement of net assets; the statement of revenues, expenses, and changes in net assets; and the statement of cash flows. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles and focus on the System as a whole.

Condensed Financial Information and Analysis

Financial Position – Statement of Net Assets

The statement of net assets is a snapshot of the System’s financial position at year end. It lists the assets (economic resources), liabilities (creditors’ claims) and net assets (residual interest in assets after paying creditors) based on end‐of‐year data.

Assets are classified as current, noncurrent, or capital. Current assets are expected to benefit the System within 12 months and include cash, accounts receivable, inventories, prepaid expenses, and investments that can easily be converted to cash to meet operating expenses. Noncurrent assets are endowment fund assets; and capital assets include equipment with a cost exceeding $5,000 and having a useful life exceeding one year. Capital assets are reported net of accumulated depreciation.

Liabilities are classified as current or noncurrent. Current liabilities are claims that are due and payable within 12 months, and include payroll and benefits, amounts payable to suppliers for goods and services received and debt principal payments due within one year. Noncurrent liabilities are obligations payable beyond one year.

4 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

Condensed Financial Information and Analysis (continued)

Financial Position – Statement of Net Assets (continued)

Below is a condensed view of the statement of net assets as of June 30, 2009, 2008, and 2007:

(Dollars in Thousands) 2009 2008 2007 Assets: Current assets$ 1,924 $ 1,858 $ 2,238 Noncurrent assets 2,147 2,497 1,412 Other assets 47 63 66 Total assets$ 4,118 $ 4,418 $ 3,716

Liabilities: Current liabilities$ 1,053 1,634$ 1,966 Noncurrent liabilities 251 233 81 Total liabilities 1,304 1,867 2,047

Net Assets: Invested in capital assets 2,148 2,496 1,412 Unrestricted 666 55 257 Total net assets 2,814 2,551 1,669

Total liabilities and net assets$ 4,118 $ 4,418 $ 3,716

Statement of Revenues, Expenses, and Changes in Net Assets

The statement of revenues, expenses, and changes in net assets reports the System’s results of operations. In accordance with GASB reporting principles, revenues and expenses are classified as operating, nonoperating or other.

In general, operating revenues are those received in the form of Community Service grants funded by the Corporation for Public Broadcasting, as well as miscellaneous sales of goods and services. Operating expenses are those costs incurred to provide the staffing, maintenance, and equipment necessary to deliver public radio and television programming to the citizens of the state of Washington and portions of Idaho, Oregon, and British Columbia.

5 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

Condensed Financial Information and Analysis (continued)

Statement of Revenues, Expenses, and Changes in Net Assets (continued)

Nonoperating revenues are monies received for which goods and services are not provided. These funds include those provided by direct allocation from WSU in furtherance of WSU’s mission, capital equipment grants, as well as contributions made by individual and business donors to sponsor public broadcasting activities.

Nonoperating revenues in 2009 declined by $1,261,143 from 2008, following an increase of $1,067,782 from 2007. These revenues are generated by grants that are for large, multi‐year projects. The amount of revenue received each year fluctuates due to the completion cycles of each project and by the amount of new funding available each year. Several new grants were funded in 2007 and 2008 to upgrade broadcast equipment to digital technology in conjunction with the Federal Communications Commission mandate. These projects proceeded through 2007 and 2008, and several were completed in 2009.

Following is a condensed view of the statements of revenues, expenses, and changes in net assets for the fiscal years ended June 30, 2009, 2008, and 2007:

(Dollars in thousands) 2009 2008 2007

Operating revenues$ 1,396 $ 1,598 $ 1,233 Operating expenses (8,375) (9,218) (8,666) Loss from operations (6,979) (7,620) (7,433)

Nonoperating revenues 7,241 8,502 7,434 Change in net assets 262 882 1 Net assets, beginning of year 2,551 1,669 1,668 Net assets, end of year$ 2,813 $ 2,551 $ 1,669

The System’s largest revenue source is general appropriation from WSU which comprises 51% of the System’s revenue. The appropriation largely funds salaries and employee benefits in the area of Academic Media Services (58%), Radio (18%), and Television (24%). A component of the appropriation was allocated to purchase and install upgraded multi‐media equipment in general university classrooms, in the amount of $87,029, down from $535,167 in 2008.

6 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

2009 Revenue by Major Source

Capital grants Contract revenue 1% CPB Community Contributions and 2% Service Grants underwriting 13% 22% Other income 1% Other operating grants 1% Donated facilities and administrative support from WSU 9% General appropriation from WSU 51%

2008 Revenue by Major Source

Contract revenue CPB Community 0% Service Grants Other grants 14% Other operating 13% grants 1% Other income Contributions and 1% underwriting 17%

Indirect Administrative General Support appropriation from 9% WSU 45%

Employee salaries, wages, and benefits comprise a total of 54% and 49% of total expenditures in 2009 and 2008, respectively. Noncapitalized operating equipment purchases decreased to 3% of total expenditures in 2009, down from 12% in 2008, as a result of the economic downturn and the reduction in the availability of funds for classroom upgrade projects.

7 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Management’s Discussion and Analysis

2009 Expenses by Major Natural Classification

Indirect Depreciation administrative and 7% facilities support 10% Fund raising and membership Programming and development production 8% 42%

Management and general 6% Program information 1% Broadcasting 26%

2008 Expenses by Major Natural Classification

All other expenses 17%

Depreciation Salaries and wages 5% 37%

Program production and acquisitions 7% Operating Equipment 12% Indirect Employee benefits administrative and and payroll taxes facilities support 12% 10%

8 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Statements of Net Assets

June 30, 2009 2008 Assets

CURRENT ASSETS: Cash on deposit with WSU$ 1,062,309 $ 839,116 Accounts receivable 17,069 14,384 Contributions and underwriting receivables, less allowance for uncollectible amounts of $17,276 and $30,261, respectively 171,141 190,607 Grants and contracts receivable 193,672 382,651 Costs incurred for programs not yet broadcast 479,890 431,555 Total current assets 1,924,081 1,858,313

NONCURRENT ASSETS: Equipment 15,038,755 14,967,034 Less accumulated depreciation 12,891,360 12,470,281 2,147,395 2,496,753

OTHER ASSETS: Investment in endowment funds 46,646 62,971

$ 4,118,122 $ 4,418,037

Liabilities and Net Assets

CURRENT LIABILITIES: Accounts payable$ 106,026 $ 270,592 Accrued payroll 164,116 156,852 Accrued vacation 309,264 283,419 Deferred revenue 402,370 845,249 Current maturities of long‐term debt 71,432 78,031 Total current liabilities 1,053,208 1,634,143

LONG‐TERM DEBT, less current maturities 251,379 232,536

Total liabilities 1,304,587 1,866,679

NET ASSETS: Invested in capital assets 2,147,395 2,496,753 Unrestricted 666,140 54,605 Total net assets 2,813,535 2,551,358

$ 4,118,122 $ 4,418,037

See accompanying notes to financial statements.

9 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Statements of Revenues, Expenses, and Changes in Net Assets

Years Ended June 30, 2009 2008

OPERATING REVENUES: Contract revenue$ 74,296 $ 25,793 Community service grants from the Corporation for Public Broadcasting 1,175,758 1,382,391 Other operating grants 75,737 59,126 Other income 70,566 130,225 1,396,357 1,597,535

OPERATING EXPENSES: Programming and production 3,485,118 3,293,144 Broadcasting 2,265,070 3,229,352 Program information 43,551 62,985 Management and general 489,251 586,350 Fund raising and membership development 691,699 668,317 Indirect administrative and facilities support 798,320 904,985 Depreciation 602,114 472,712 8,375,123 9,217,845

OPERATING LOSS (6,978,766) (7,620,310)

NONOPERATING REVENUES: General appropriation from WSU 4,415,516 4,565,945 Donated facilities and administrative support from WSU 798,320 904,985 Contributions and underwriting 1,878,473 1,681,746 Capital grants 148,634 1,349,410 7,240,943 8,502,086

CHANGE IN NET ASSETS 262,177 881,776

NET ASSETS, BEGINNING OF YEAR 2,551,358 1,669,582

NET ASSETS, END OF YEAR $ 2,813,535 $ 2,551,358

See accompanying notes to financial statements.

10 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Statements of Cash Flows

Years Ended June 30, 2009 2008

Increase (Decrease) in Cash

CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers$ 142,177 $ 185,215 Cash received from operating grants 1,459,940 1,083,458 Cash paid to suppliers (2,642,334) (3,243,072) Cash paid for employee salaries, wages, and benefits (4,512,147) (4,548,070) Net cash used in operating activities (5,552,364) (6,522,469)

CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES: General appropriation from WSU 4,415,516 4,565,945 Contributions and underwriting received 1,435,594 1,275,634 Endowments 16,325 2,746 Capital grants 148,634 1,349,410 Net cash provided by noncapital and related financing activities 6,016,069 7,193,735

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of equipment (252,756) (1,557,284) Proceeds from notes payable to state of Washington 246,427 246,427 Payments on long‐term debt (234,183) (69,366) Net cash used in capital and related financing activities (240,512) (1,380,223)

NET INCREASE (DECREASE) IN CASH 223,193 (708,957)

CASH, BEGINNING OF YEAR 839,116 1,548,073

CASH, END OF YEAR $ 1,062,309 $ 839,116

See accompanying notes to financial statements.

11 Statements of Cash Flows

Years Ended June 30, 2009 2008

Reconciliation of Operating Loss to Net Cash Used in Operating Activities:

Operating loss$ (6,978,766) $ (7,620,310) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 602,114 472,712 Indirect administrative and facilities support from WSU 798,320 904,985 Net changes in assets and liabilities: Accounts receivable (2,685) 29,197 Grants and contracts receivable 208,445 (274,757) Costs incurred for programs not yet broadcast (48,335) (83,107) Accounts payable (164,566) 181,450 Accrued payroll 7,264 (7,622) Accrued vacation 25,845 (41,715) Payable to WSU ‐ (83,302)

Net cash used in operating activities$ (5,552,364) $ (6,522,469)

11 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 1 — FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Financial Reporting Entity:

Northwest Public Radio and KWSU/KTNW Public Television (the System) is a noncommercial educational radio and television system licensed to Washington State University (WSU) in Pullman, Washington. Its oldest television station, KWSU, has broadcast since 1962 and is a full member of the Public Broadcasting Service, America’s Public Television Stations, and the Washington Educational Network. The System’s oldest radio station, KWSU, has broadcast since 1922 and is a full member of National Public Radio.

The System’s financial statements include the accounts of Northwest Public Radio (KWSU‐AM/KRFA‐FM/KFAE‐ FM/KNWR‐FM/KNWY‐FM/KNWO‐FM/KNWV‐FM/KZAZ‐FM/KLWS‐FM/KWWS‐FM/KNWP‐FM/KQWS‐ FM/KMWS‐FM), KWSU‐TV and KTNW‐TV Public Television, and Academic Media Services, which for broadcast, budget, and certain grant purposes are separately identified and accounted for. However, they share facilities and personnel and are constituent organizational departments of WSU. All significant interdepartmental accounts and transactions have been eliminated.

These financial statements present only a selected portion of the activities of WSU. As such, they are not intended to and do not present either the financial position, changes in net assets, or cash flows of WSU.

WSU is a public university in the state of Washington. It is governed by a ten‐member Board of Regents appointed by the Governor of the state. WSU is a tax‐exempt organization under the provisions of Section 115(a) of the Internal Revenue Code and is exempt from federal income taxes on related income.

Summary of Significant Accounting Policies:

Measurement focus and basis of accounting – The financial statements of the System have been prepared using a flow of economic resources measurement focus of accounting on the accrual basis.

Accounting standards – Pursuant to Governmental Accounting Standards Board (GASB) No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the System has elected not to apply the provisions of pronouncements of the Financial Accounting Standards Board.

Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

12 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 1 — FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):

Summary of Significant Accounting Policies (continued):

Contributions and underwriting receivables – The System records receivables for membership contributions in the period the pledges are made. The System records underwriting receivables as they are billed per the underwriting agreement. All contributions, program underwriting, and other accounts receivable are unsecured. Substantially all program underwriting receivables are due from underwriters located in Washington.

Costs incurred for programs not yet broadcast – Costs incurred for programs not yet broadcast relate to program rights and programs acquired by the System that are expected to be broadcast subsequent to year end.

Capital assets – Equipment is stated at cost. Consistent with state of Washington policy, the System capitalizes equipment that has a cost of at least $5,000 and an estimated useful life of more than one year. Depreciation is calculated on the straight‐line basis over the estimated useful lives of the assets. Assets acquired using federal grant money are capitalized and depreciated over the estimated useful lives of such assets.

Accrued vacation – Accumulated vacation leave, earned and unused by employees of the System, represents a liability to the System and is recorded and reported accordingly.

Deferred revenue – Funds restricted by the donor, grantor, or other outside party for particular purposes are deemed to be earned and reported as revenues when the System has incurred expenditures in compliance with the specific restrictions. Such amounts received but not yet earned are reported as deferred revenue.

Revenues and expenses – Operating revenues and expenses generally result from providing services and producing and delivering goods. Nonoperating revenues and expenses include interest revenue, equipment grants, and contributions that are not equivalent to contracts for services.

Donated services and facilities – Donated supplies and in‐kind services are recorded at their estimated value as revenues and expenses in the period they are received. Donated facilities from WSU consist of office and studio space together with related occupancy costs, and are recorded as revenues and expenses at values determined using the methodology developed by the Corporation for Public Broadcasting. Administrative support from WSU consists of allocated institutional and physical plant expense incurred by WSU in support of the System.

Allocation of costs – The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of revenues, expenses, and changes in net assets. Accordingly, certain costs have been allocated between program and supporting services based upon total direct costs or another systematic basis.

13 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 1 — FINANCIAL REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):

Summary of Significant Accounting Policies (continued):

Risk management – WSU participates in a state of Washington risk management self‐insurance program. Premiums are based on actuarially determined projections and include allowances for payments of both outstanding and current liabilities. WSU assumes its potential liability and property losses for all properties except for auxiliary enterprise buildings and contents. WSU has elected to self‐insure for unemployment compensation.

Concentrations of credit risk – Cash balances are deposited with WSU. Some cash balances in excess of current requirements are pooled with other WSU funds and commonly invested.

Cash and pooled investments are stated at fair value. Bank deposits were covered by the Federal Deposit Insurance Corporation or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission.

Economic dependence – The System is dependent upon funding from the Corporation for Public Broadcasting, WSU, underwriters, and contributors.

NOTE 2 — GRANTS AND CONTRACTS RECEIVABLE:

Grants and contracts receivable were as follows:

June 30, 2009 2008

Corporation for Public Broadcasting – Community Service Grant $ 32,500 $ 32,500 Corporation for Public Broadcasting – Internet Services Acquisition 4,000 ‐ Corporation for Public Broadcasting – Digital Conversion Fund 143,850 311,672 Northwest Public Affairs Network 13,322 13,479 WSU Foundation ‐ 25,000

$ 193,672 $ 382,651

14 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 3 — EQUIPMENT:

The following summarizes activity related to equipment for the years ended June 30, 2009 and 2008:

Balance, Balance, June 30, 2008 Additions Retirements June 30, 2009

Equipment $ 14,967,034 $ 252,756 $ (181,035) $ 15,038,755 Less accumulated depreciation 12,470,281 602,114 181,035 12,891,360

$ 2,496,753 $ (349,358) $ ‐ $ 2,147,395

Balance, Balance, June 30, 2007 Additions Retirements June 30, 2008

Equipment $ 13,453,248 $ 1,557,284 $ (43,498) $ 14,967,034 Less accumulated depreciation 12,041,067 472,712 43,498 12,470,281

$ 1,412,181 $ 1,084,572 $ ‐ $ 2,496,753

Equipment includes the following expenditures for broadcasting equipment obtained through grants from the U.S. Department of Commerce’s Public Telecommunications Facilities Program:

Years Ended June 30, Amount

1999 $ 101,584 2002 98,245 2003 630,665 2004 48,294 2005 432,379 2006 67,881 2007 52,688 2008 1,436,994 2009 (91,129)

$ 2,868,730

The federal government has a 10‐year priority lien on any property purchased under these grants to assure continued use for public telecommunications. Ten years from the final close out of each grant, the System receives complete ownership of the equipment.

15 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 4 — PENSION PLANS:

As employees of WSU, the full‐time System employees are participants in the State of Washington Public Employees’ Retirement System (PERS) and the Teachers’ Insurance and Annuity Association or College Retirement Equities Fund (TIAA‐CREF). PERS is a defined benefit pension plan. The TIAA‐CREF plan is a multiemployer defined contribution plan. Under these plans, the employee and employer contribute a percentage of the employee’s compensation. During the years ended June 30, 2009 and 2008, the System contributed $260,252, and $229,260, respectively, to these plans. An actuarial valuation of the PERS plan for the System as a stand‐alone entity is not available.

NOTE 5 — OTHER POST‐EMPLOYMENT BENEFITS:

During the 2008 fiscal year, the University adopted GASB No 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions. This statement establishes standards for the measurement, recognition, and display of other post‐employment benefits (OPEB) expenditures and related liabilities (assets), note disclosures, and required supplementary information in the financial reports of state and local governmental employers. GASB No. 45 requires systematic, accrual‐basis measurement and recognition of OPEB cost (expense) over a period that approximates employees’ years of service. The Statement also provides information about actuarial accrued liabilities (AAL) associated with OPEB and whether and to what extent progress is being made in funding the plan.

The State of Washington funds OPEB obligations at a state‐wide level on a pay‐as‐you‐go basis. Disclosure information, as required under GASB No. 45, does not exist at department levels, and as a result, the AAL is not available for auxiliary entities. The State of Washington’s Comprehensive Annual Financial Report (CAFR) includes the State’s measurement and recognition of OPEB expense/expenditures, liabilities, note disclosures and required supplemental information specified by GASB No. 45.

NOTE 6 — COMMITMENTS:

Grant commitments – During the fiscal year ended June 30, 2009, the System received the following grants to fund specific projects as follows:

National Telecommunication and Information Administration Grants

• The KWSU‐TV Local Studio Production Project has a total estimated project cost of $1,016,375 (of which the grant will provide the lesser of 50% or $508,187). As of June 30, 2009, $328,962 in local funds were expended, and $328,962 in grant funds were expended and reimbursed by the funding agency. This project is expected to be completed by December 31, 2009.

• The KWWS‐FM Emergency Power Project has a total project cost of $30,900 (of which the grant will provide the lesser of 50% or $15,450). As of June 30, 2009, no expenditures were made on this project and no grant funds were received. This project is expected to be completed by June 30, 2010.

16 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 6 — COMMITMENTS (continued):

National Telecommunication and Information Administration Grants (continued)

• The Chehalis Rural First Service Project has a total estimated project cost of $227,093 (of which the grant will provide the lesser of 75% or $170,319). As of June 30, 2009, no grant funds were received and no grant expenditures were made. This project is expected to be completed by June 30, 2010.

• The KLWS‐FM Emergency Power Project has a total project cost of $45,560 (of which the grant will provide the lesser of 50% or $22,780). As of June 30, 2009, no grant funds were received and no grant expenditures were made. This project is expected to be completed by September 30, 2010.

• The Northwest Public Radio Remote Control & Monitoring Project has a total project cost of $148,810 (of which the grant will provide the lesser of 50% or $74,405). As of June 30, 2009, no grant funds were received and no grant expenditures were made. This project is expected to be completed by September 30, 2010.

• The KWSU‐TV Translator Digital Conversion Project has a total project cost of $5,000 (of which the grant will provide up to $1,000). As of June 30, 2009, all grant funds were received and expended.

Corporation for Public Broadcasting Digital Radio Conversion Fund

• The KNWR Digital Radio Conversion Fund grant funded the construction of digital transmission facilities for the station serving the communities of Wenatchee and Ellensburg, Washington. The total project cost for KNWR was $142,916 (of which the grant award provided $85,000). As of June 30, 2009, grant funds of $85,000 were received and spent. Local funds in the amount of $57,916 were provided for the project, which was complete as of June 30, 2009.

• The KNWP‐FM Digital Conversion Project funded the upgrade of the station serving Port Angeles, Washington, and Victoria, British Columbia, Canada, to digital technology. The total project cost for KNWP was $84,494 (of which the grant award provided $71,820). As of June 30, 2009, grant funds of $47,900 were received and $23,920 was recorded as grant receivable in these financial statements. Local funds in the amount of $12,674 were provided for the project, which was complete as of June 30, 2009.

• The KNWV‐FM Digital Conversion Project funded the upgrade of the station serving Lewiston, Idaho, and Clarkston, Washington, to digital technology. The total project cost for KNWV was $79,034 (of which the grant award will provide $67,179). As of June 30, 2009, grant funds of $50,000 were received and $17,179 was recorded as grant receivable in these financial statements. Local funds in the amount of $11,855 were provided for the project, which was complete as of June 30, 2009.

• The KWWS‐FM Digital Conversion Project funded the upgrade of the station serving Walla Walla and Tri‐ Cities, Washington, to digital technology. The total project cost for KWWS was $119,616 (of which the grant award will provide $105,000). As of June 30, 2009, grant funds of $50,000 were received and $55,000 was recorded as grant receivable in these financial statements. Local funds in the amount of $14,616 were provided for the project, which was complete as of June 30, 2009.

17 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 6 — COMMITMENTS (continued):

Corporation for Public Broadcasting Digital Radio Conversion Fund (continued)

• The KZAZ‐FM Digital Conversion Project funded the upgrade of the station serving Bellingham and Anacortes, Washington, to digital technology. The estimated total project cost for KZAZ was $76,353 (of which the grant award will provide $64,900). As of June 30, 2009, grant funds in the amount of $43,100 were received and $21,800 was recorded as grant receivable in these financial statements. Local funds in the amount of $11,453 were provided for the project, which was complete as of June 30, 2009.

• The following digital radio conversion projects have been awarded and two have received partial funding, but no expenditures have been made at year end. Deferred revenue as shown below is reported in the statement of net assets.

Project Grant Funding Local Funding Total Project Deferred Revenue

KQWS Digital $105,000 $50,091 $155,091 $50,000 KNWO Digital 104,810 20,779 125,589 49,900 KWSR Digital 80,000 56,344 136,344 ‐

Corporation for Public Broadcasting

• The KWSU‐TV Rechannelization Project provides funds to enable KWSU‐TV to revert to its channel 10 allocation after the completion of the digital conversion. The estimated total project cost is $209,956 (of which the grant award will pay the lesser of 50% or $104,978). As of June 30, 2009, grant funds in the amount of $78,700 were received, and $12,432 was recorded as grant receivable in these financial statements. Local funds in the amount of $98,762 were provided for the project, which was completed as of August 31, 2009.

• The KWSU/KTNW DTV Completion Project provides funds to enable KWSU and KTNW Public Television to complete its digital conversion. The estimated total project cost was $338,500 (of which the grant award will pay the lesser of 60% or $203,100). As of June 30, 2009, there were no grant funds received, a total of $22,530 was expended and $13,518 was recorded as grant receivable in these financial statements. Local funds in the amount of $9,012 have been provided for the project, which is expected to be completed as of December 31, 2009.

Public Broadcasting Service membership – In July 2009, the System committed to pay $210,241 to the Public Broadcasting System for continued membership and to acquire programming for the fiscal year ending June 30, 2010.

National Public Radio membership – In August 2009, the System committed to pay $356,959 to the National Public Radio for continued membership and to acquire programming for the one‐year period ending September 30, 2010.

18 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 6 — COMMITMENTS (continued):

Lease commitments and total rental expense – The System has leased sites and/or facilities to locate equipment necessary for state‐wide transmission of broadcast and microwave signals under various operating lease agreements that expire between December 31, 2009 and April 16, 2019.

Future minimum rental commitments are as follows:

Years Ending June 30, Amount

2010 $ 121,651 2011 90,008 2012 72,164 2013 58,895 2014 57,602 2015 and subsequent years 150,128

$ 550,448

The System’s rent expense for the years ended June 30, 2009 and 2008, was $110,823 and $105,688, respectively, not including the value of facility space donated by WSU.

19 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 7 — LONG‐TERM DEBT:

Following is a summary of long‐term debt at June 30, 2009:

Note payable to the state of Washington, due in semiannual installments of $8,501, including interest at 3.49%; collateralized by equipment $ 8,356 Note payable to the state of Washington, due in semiannual installments of $2,446, including interest at 4.44%; collateralized by equipment 15,702 Note payable to the state of Washington, due in semiannual installments of $1,890, including interest at 4.44%; collateralized by equipment 12,133 Note payable to the state of Washington, due in semiannual installments of $4,893, including interest at 4.44%; collateralized by equipment 31,403 Note payable to the state of Washington, due in semiannual installments of $6,040, including interest at 4.61%; collateralized by equipment 58,110 Note payable to the state of Washington, due in semiannual installments of $2,258, including interest at 4.61%; collateralized by equipment 21,718 Note payable to the state of Washington, due in semiannual installments of $899, including interest at 4.61%; collateralized by equipment 8,651 Note payable to the state of Washington, due in semiannual installments of $2,774, including interest at 3.69%; collateralized by equipment 29,623 Note payable to the state of Washington, due in semiannual installments of $7,131, including interest at 3.56%; collateralized by equipment 76,441 Note payable to the state of Washington, due in semiannual installments of $9,411, including interest at 4.2%; collateralized by equipment 60,674 322,811 Less current maturities 71,432

$ 251,379

Aggregate scheduled principal and interest payments are as follows:

Years Ending June 30, Principal Interest Total

2010 $ 71,432 $ 12,554 $ 83,986 2011 65,754 9,734 75,488 2012 68,542 6,941 75,483 2013 52,812 4,033 56,845 2014 35,991 2,214 38,205 2015 28,280 729 29,009

$ 322,811 $ 36,205 $ 359,016

Related interest expense was approximately $24,400 and $6,300 for the years ended June 30, 2009 and 2008, respectively.

20 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Notes to Financial Statements

NOTE 8 — INVESTMENT IN ENDOWMENT FUNDS:

On November 30, 2004, Northwest Public Radio and KWSU/KTNW Public Television each established endowment funds with the Washington State University Foundation (Foundation). The investments are held by the Foundation in pools that include investments in various stocks, bonds, fixed income securities, real estate and commodities. Distributions are made in accordance with the applicable investment policy and payment procedures of the Foundation. The policies of the Foundation are intended to maintain a perpetual fund, provide a stable source of support, and invest for total return and long‐term growth.

Investments are stated at estimated fair value, and realized and unrealized gains and losses are reflected in the statements of revenues, expenses, and changes in net assets.

SUPPLEMENTAL INFORMATION

INDEPENDENT AUDITORS’ REPORT ON SUPPLEMENTAL INFORMATION

Board of Regents Washington State University Pullman, Washington

Our audits were conducted for the purpose of forming an opinion on the basic financial statements of Northwest

Public Radio and KWSU/KTNW Public Television taken as a whole as of and for the years ended June 30, 2009 and

2008 which are presented in the preceding section of this report. The supplemental information on pages 24 and 25 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Spokane, Washington December 1, 2009

23 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Schedule of Revenues, Expenses, and Changes in Net Assets on a Departmental Basis Year Ended June 30, 2009

Northwest Public Radio Northwest Public Television Total AMS‐ AMS‐Video‐ Total Combined WMS‐Radio Radio Radio Broadcast Uplink Classroom WMS‐TV WECN Conference Television Totals

OPERATING REVENUES: Contract revenue $ 280 $ ‐ $ 280 $ ‐ $ ‐ $ 40,842 $ 280 $ 26,775 $ 6,119 $ 74,016 $ 74,296 Community services grants from the Corporation for Public Broadcasting ‐ 283,541 283,541 892,217 ‐ ‐ ‐ ‐ ‐ 892,217 1,175,758 Other operating grants ‐ 73,737 73,737 2,000 ‐ ‐ ‐ ‐ ‐ 2,000 75,737 Other income 3,000 46,036 49,036 11,262 ‐ 7,268 3,000 ‐ ‐ 21,530 70,566 3,280 403,314 406,594 905,479 ‐ 48,110 3,280 26,775 6,119 989,763 1,396,357

OPERATING EXPENSES: Programming and production 121,176 1,159,015 1,280,191 828,672 ‐ 189,934 121,176 160,146 904,999 2,204,927 3,485,118 Broadcasting 14,905 596,209 611,114 480,790 9,671 681,111 14,905 259 467,220 1,653,956 2,265,070 Program information ‐ 40,860 40,860 2,692 ‐ ‐ ‐ ‐ ‐ 2,692 43,551 Management and general 37,931 119,209 157,140 134,420 636 102,032 37,931 ‐ 57,092 332,111 489,251 Fund raising and membership development ‐ 536,434 536,434 155,265 ‐ ‐ ‐ ‐ ‐ 155,265 691,699 Indirect administrative and facilities support 20,185 280,169 300,354 179,301 1,196 112,876 20,185 18,607 165,801 497,966 798,320 Depreciation ‐ 198,820 198,820 306,221 ‐ 30,515 ‐ ‐ 66,558 403,294 602,114 Total operating expenses 194,197 2,930,716 3,124,913 2,087,361 11,503 1,116,468 194,197 179,012 1,661,670 5,250,211 8,375,123

OPERATING LOSS (190,917) (2,527,402) (2,718,319) (1,181,882) (11,503) (1,068,358) (190,917) (152,237) (1,655,551) (4,260,448) (6,978,766)

NONOPERATING REVENUES: General appropriation from WSU 170,247 638,751 808,998 896,558 ‐ 946,654 170,247 129,394 1,463,665 3,606,518 4,415,516 Donated facilities and administrative support from WSU 20,185 280,170 300,355 179,300 1,196 112,877 20,185 18,607 165,800 497,965 798,320 Contributions and underwriting ‐ 1,678,066 1,678,066 200,407 ‐ ‐ ‐ ‐ ‐ 200,407 1,878,473 Capital grants ‐ 147,737 147,737 668 ‐ 229 ‐ ‐ ‐ 897 148,634 190,432 2,744,724 2,935,156 1,276,933 1,196 1,059,760 190,432 148,001 1,629,465 4,305,787 7,240,943

CHANGE IN NET ASSETS $ (485) $ 217,322 $ 216,837 $ 95,051 $ (10,307) $ (8,598) $ (485) $ (4,236) $ (26,086) $ 45,339 $ 262,177

See accompanying independent auditors’ report on supplemental information.

24 Northwest Public Radio and KWSU/KTNW Public Television (A Public Telecommunications System Operated by Washington State University)

Schedule of Functional Expenses Year Ended June 30, 2009

Program Services Support Services Programming Total Fund Raising Total and Program Program Management and Support Production Broadcasting Information Services and General Membership Services Total

Salaries and wages$ 1,813,269 $ 1,074,190 $ 1,423 $ 2,888,882 $ 257,485 $ 371,050 $ 628,535 $ 3,517,417 Employee benefits and payroll taxes 499,681 306,546 ‐ 806,227 68,543 119,959 188,502 994,729 Program production and acquisitions 869,574 3,025 1,000 873,599 ‐ ‐ ‐ 873,599 Program distribution ‐ 25,513 ‐ 25,513 ‐ ‐ ‐ 25,513 Professional services ‐ ‐ ‐ ‐ 64,559 ‐ 64,559 64,559 Contract services 108,445 221,804 16,997 347,246 ‐ 200 200 347,446 Membership dues 14,179 15 195 14,389 22,663 6,800 29,463 43,852 Subscriptions and publications 5,499 ‐ 172 5,671 2,025 1,879 3,904 9,575 Office supplies 8,433 1,143 323 9,899 4,350 2,625 6,975 16,874 Computer supplies, software, and line charges 15,565 28,867 ‐ 44,432 2,381 490 2,871 47,303 Telephone and facsimile 17,219 20,274 ‐ 37,493 32,033 11,634 43,667 81,160 Photocopying 1,520 1,994 ‐ 3,514 4,815 94 4,909 8,423 Postage and shipping 2,976 2,239 880 6,095 324 24,393 24,717 30,812 Advertising 2,505 28 6,636 9,169 ‐ ‐ ‐ 9,169 Repairs and maintenance 7,467 167,814 ‐ 175,281 2,065 14,290 16,355 191,636 Printing and publications 259 ‐ 2,378 2,637 ‐ 29,838 29,838 32,475 Travel 21,807 17,415 2,168 41,390 4,777 18,940 23,717 65,107 Motor vehicle operations 1,646 67,962 ‐ 69,608 15,867 78 15,945 85,553 Site rent 150 98,037 4,476 102,663 ‐ 8,160 8,160 110,823 Site utilities ‐ 53,819 ‐ 53,819 ‐ ‐ ‐ 53,819 Audience research 7,472 ‐ ‐ 7,472 ‐ ‐ ‐ 7,472 Premiums ‐ ‐ 81 81 ‐ 21,418 21,418 21,499 Telemarketing and direct mail ‐ ‐ ‐ ‐ 6 7,625 7,631 7,631 Miscellaneous 18,102 31,984 6,822 56,908 7,358 51,400 58,758 115,666 Operating equipment 69,350 142,401 ‐ 211,751 ‐ 826 826 212,577 3,485,118 2,265,070 43,551 5,793,739 489,251 691,699 1,180,950 6,974,689 Indirect administrative and facilities support 401,540 259,087 5,052 665,679 56,754 75,887 132,641 798,320 Depreciation 171,108 431,006 ‐ 602,114 ‐ ‐ ‐ 602,114

$ 4,057,766 $ 2,955,163 $ 48,603 $ 7,061,532 $ 546,005 $ 767,586 $ 1,313,591 $ 8,375,123

See accompanying independent auditors’ report on supplemental information.